The world's top rubber producers meet this week to look for ways to lift prices hovering near their lowest in nearly four years, but reversing the slide will be tough, because of plunging car sales and mounting stockpiles. The International Rubber Consortium (IRCo) is meeting for the second time in as many months after supply-side measures announced last month did little to shore up prices that have slid more than 60 percent since hitting a 28-year high in June.
With demand for tyres, which account for 60 percent of rubber consumption, slowing to a trickle because of spreading economic gloom that has left auto firms from the United States to Japan struggling, traders expect rubber prices to fall even further.
"No matter what you do with the supply side, it won't help prop up prices because demand is very low, especially when the three biggest US car makers are asking for a bailout plan," an analyst at a Thai rubber futures broker said.
Thursday's meeting of the IRCo, which groups Thailand, Indonesia and Malaysia and accounts for 70 percent of world output, will discuss several possible measures, including a rubber-buying scheme. The meeting will take place in Bangkok. "After our last meeting in October, we came up with measures to cut supply, but prices kept falling. So we need to meet again to discuss the situation," IRCo Chief Secretary Yium Tavarolit told Reuters.
The price of Thai USS3, export-grade rubber sheet (RSS3), fell to 43 baht per kg on Monday, the lowest for the raw material since February 2005, traders said. Analysts said prices are expected to fall further since global demand is likely to remain weak as industrial users scale back production.
In October, US auto sales slid 32 percent, to lows unseen in 25 years, hitting every major automaker. Auto industry inventories rose to an alarming 98 days worth of supplies. US auto production for the year to November 15 slid a steep 16.7 percent from last year to the lowest build rate in 15 years. Both General Motors and Toyota Motor Co said last week they would cut production at their plants in Thailand to shave costs in the face of weak sales.
JUST SPECULATION? The IRCo agreed on October 17 to cut production by 215,000 tonnes next year. That was equivalent to just 3 percent of their output and made no impression. But IRCo's Yium blamed speculators for the market's weakness. "Prices do not reflect the real market situation. It's down because of speculation in the futures market. That's why we need to meet again to do something," Yium said.
However, the collapse in oil prices and the prospect of a global recession seem to be driving rubber prices down. Rubber futures on the Tokyo Commodity Exchange (TOCOM) fell to their lowest in nearly four years on Friday as players liquidated contracts after oil fell below $50 a barrel.
TOCOM rubber settled at 138.0 yen ($1.44) per kg on Friday. The most active contract on Tokyo rubber futures has lost more than 60 percent in value since hitting a 28-year high above 350 yen per kg in June.
The market was closed on Monday in Japan but dealers expected further falls on Tuesday due to weak oil prices. "Some pessimistic dealers expect TOCOM prices to fall below 100 yen on fears of falling demand," a trader in Thailand's Hat Yai rubber centre said, noting that car sales were slumping around the world. Analysts said rubber might rebound briefly if the IRCo came up with an intervention scheme to buy rubber to hold in stocks.
But, at a time of recession, the rubber hanging over the market would push prices back down again before too long. "Prices could rebound due to the psychological effect, but they will fall later as the huge stocks weigh on the market. The stocks will automatically limit the rise," said Paka-on Tipayatanadaja, an economist at Kasikorn Research Centre.